When asked why he robbed banks, gangster Willie Sutton gave a simple and obvious answer. "'Cause that," he said, "is where the money is."
Now, unless you're Bernie Madoff or Raj Rajaratnam, there aren't too many parallels between investing and criminal activity, but Sutton's observation is still applicable. Put simply, you can't make money unless there's money to be made.
What this means for you
Consider, for example, the U.S. airline industry. Southwest excepted, it's where good money goes to die:
|
Company
|
No. of Years It's Turned a Profit Since 2005
|
Accumulated Profits (Losses) Since 2005
|
|
AMR (NYSE: AMR )
|
2
|
($3.3 billion)
|
|
Continental (NYSE: CAL )
|
2
|
($218 million)
|
|
Delta
|
1
|
($18.5 billion)
|
|
JetBlue (Nasdaq: JBLU )
|
2
|
($32 million)
|
|
Southwest
|
4
|
$1.8 billion
|
|
UAL
|
2
|
($3.7 billion)
|
|
US Airways (NYSE: LCC )
|
2
|
($2.1 billion)
|
Data from Capital IQ.
As you might expect, investors in this space have done poorly as well:
|
Company
|
Return Since 2005
|
|
AMR
|
(24%)
|
|
Continental
|
54%
|
|
Delta
|
Incalculable due to bankruptcy
|
|
JetBlue
|
(63%)
|
|
Southwest
|
(29%)
|
|
UAL
|
Incalculable due to bankruptcy
|
|
US Airways
|
Incalculable due to bankruptcy
|
Data from Capital IQ.
All of this is to say that if you're looking to make money in the stock market, you -- as even Warren Buffett learned during a star-crossed experience with US Airways -- should stay away from the U.S. airline industry. There's just not a lot of money to be made here for long-term, business-focused investors.
On the flipside
Contrast that with emerging markets such as China and India. China's GDP is expected to grow between 8% and 9% in 2010 and India's between 7% and 8%. In other words, there's a lot of money to be made in these markets next year and beyond -- so that's where you want to be investing.
It's why YUM! Brands has already expanded aggressively in China and recently announced plans to accelerate its expansion in India. It's why JPMorgan Chase (NYSE: JPM ) is predicting that emerging markets will "surge" in 2010. It's why Warren Buffett and Charlie Munger decided to buy shares of Chinese battery maker BYD for Berkshire Hathaway (NYSE: BRK-B ) . And it's why famed Fidelity Special Situations fund manager Anthony Bolton, a man who earned nearly 20% annually over a 28-year career, is coming out of retirement to launch a China fund.
But I'll let him tell you about that
The Bolton news is particularly interesting. After all, this was a man who had a phenomenal career and needs to do nothing more to burnish his reputation or financial security. Yet as he wrote in a recent Financial Times editorial, he sees something in China that he's never seen before:
I recently spent three months based in Fidelity's Hong Kong office. ... After a few weeks there, I said to my wife that the exciting opportunities available in China, and my belief that the market could go a lot higher over the next few years, made me wish I was still managing money. Rather to my surprise, she said that as I only had one life I should consider running a fund again while I still had the opportunity.
Further, Bolton agrees (as I do) with the assessment by Goldman Sachs' Jim O'Neill that "what is going on in China remains ... the most remarkable and important story of our, and possibly our children's, generation."
Put it all together, and emerging markets today present a once-in-a-lifetime opportunity that is prompting at least one of the world's top money managers to redirect his life's course! Given all of that information, I have to ask: Are you investing in emerging markets this year?
You may not be
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This article was first published on December 18, 2009. It has been updated.
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Tim Hanson is co-advisor of Motley Fool Global Gains. He owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Stock Advisor and an Inside Value recommendation. The Fool owns shares of Berkshire Hathaway. The Fool's disclosure policy dances like no one is watching.
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